Post Confirmation Issues: Ascertaining the Effective Date; Post-Confirmation Jurisdiction; Serial Filing; Post-Confirmation Litigation Vehicles
By Harold S. Novikoff
With increasing frequency, many issues are purposefully relegated to the "back burner" during the pendency of a chapter 11 case and are resolved post-confirmation of the plan. Other issues arise unexpectedly after the chapter 11 plan has been confirmed. This Outline examines some of the mechanics for dealing with such issues. Part I of this Outline will review issues surrounding the effective date of the chapter 11 plan--when it occurs and its significance. Part II analyzes the reach of the bankruptcy court's power to assert jurisdiction after the plan is confirmed and goes into effect. Part III investigates the phenomenon know as "serial filing." Part IV explores the issues surrounding the designation of post-confirmation vehicles to prosecute causes of action after confirmation of the chapter 11 plan.
I. Effective Date
A. Significance of the Effective Date.
1. What is the "effective date" of a plan?
Although the Bankruptcy Code uses the term "effective date" of a chapter 11 plan in several sections, it neither defines the term nor specifies when the "effective date" occurs. Nonetheless, it is almost universally understood that the effective date of a plan is the "date on which the provisions of a plan of reorganization become effective and binding on the parties." Kenneth K. Klee, Adjusting Chapter 11: Fine Tuning the Plan Process, 69 Am. Bankr. L.J. 551, 560-61 (1995) [hereinafter Fine Tuning]; see also In re Potomac Iron Works, Inc., 217 B.R. 170 n.1 (Bankr. D. Md. 1997) (listing Bankruptcy Code sections in which the term "effective date" appears); Benjamin Weintraub & Michael J. Crames, Defining Consummation, Effective Date of Plan of Reorganization and Retention of Postconfirmation Jurisdiction: Suggested Amendments to the Bankruptcy Code and Bankruptcy Rules, 64 Am. Bankr. L.J. 245, 276 (1990) ("Effective Date is the date upon which a confirmed plan becomes operative and distribution of property and cash is commenced."); .cf. Rule 3020(e) n1 (stating that unless a court orders otherwise, an order confirming a plan is stayed for 10 days following the entry of the confirmation order).
2. Why does the effective date matter?
The effective date is not just the date on which a confirmed plan becomes operative; it is also the key reference date used in § 1129 of the Bankruptcy Code for determination of the financial confirmation requirements of a plan. The propriety of an effective date specified in a plan is also occasionally raised in the context of plan feasibility: A distant effective date is often considered an indication that the plan may not be consummated.
B. Timing of the Effective Date.
Because there is no express statutory specification as to when the effective date should occur, most chapter 11 plans provide for an effective date. See Potomac Iron Works, 217 B.R. at 172 ("The effective date plays an important role in valuation and should therefore be set forth in the plan with specificity."). Typically, the effective date specified in a plan will be the date following confirmation of the plan on which it becomes binding and distributions commence. While there may be a theoretical difference between the effective date specified in most plans and the date as of which the financial confirmation requirements should be measured under § 1129, the entry of the confirmation order, the date on which the order becomes final and the date on which the plan's distributions commence all typically occur within a period of 30 days or less. Thus, the theoretical difference is generally not a substantial issue. However, if there is a substantial gap between confirmation and substantial consummation, the determination of the effective date may have material economic consequences.
Courts have generally selected the following guidelines for determining a plan's effective date.
1. Date on which confirmation order is entered.
Some courts hold that the effective date should be on or close to the date on which the order confirming the plan is entered. See, e.g., In re Rives, Case No. 05-50750, 2006 Bankr. LEXIS 853, at *7 (Bankr. M.D.N.C. May 4, 2006) ("When the term 'effective date' is not specifically defined in a plan, it is apparent that the meaning is the same as the 'confirmation date.'"); In re Hutchinson, 354 B.R. 523, 532 n.27 (Bankr. D. Kan. 2006) (stating that in most chapter 13 cases, "the date the order of confirmation is entered is the effective date"); In re Milleson, 83 B.R. 696, 699 (Bankr. D. Neb. 1988) (finding that the effective date of a chapter 12 plan must be on or after the date on which the confirmation order is entered); In re Kruegen, 66 B.R. 463, 465 (Bankr. S.D. Fla. 1986) (holding that an effective date set at approximately four months after the confirmation hearing date is "beyond the interval essential for liquidation . . . [and] is unreasonable"); In re Jones, 32 B.R. 951, 958 n.13 (Bankr. D. Utah 1983); Klee, Fine Tuning, 69 Am. Bankr. L.J. at 560-61 (proposing the enactment of a statute defining "effective date" to bear "some reasonable relationship to the confirmation-hearing date"); see also In re Luchenbill, 112 B.R. 204, 216 (Bankr. E.D. Mich. 1990) (holding that if a chapter 12 plan fails to specify an effective date, the confirmation hearing date shall be the effective date).
Effective dates that occur well after the confirmation date may be based on out-dated financial information. Jones, 32 B.R. at 958 n.13 (noting that the effective date is the "critical point for the major financial standards for confirmation. The valuations required by these sections are likely to be less accurate if the effective date is not close to the date of the hearing on confirmation.") (citation omitted).
2. Date on which confirmation order becomes final.
Some courts hold that the effective date may be on or around the date on which the confirmation order becomes final -- that is, after any appeals are resolved or the time to bring an appeal has expired. This will often approximate the date on which distributions under the plan commence. See, e.g., In re T-H New Orleans L.P., 188 B.R. 799, 805 (E.D. La. 1995), aff'd, 116 F.3d 790 (5th Cir. 1997); Cont'l Sec. Corp. v. Shenandoah Nursing Home P'ship, 188 B.R. 205, 216-17 (W.D. Va. 1995); Potomac Iron Works, 217 B.R. at 174 (holding that a delay of more than one year between the confirmation order and the effective date is unreasonable); In re Wonder Corp., 70 B.R. 1018, 1021 (Bankr. D. Conn. 1987) (holding that an effective date defined as the twentieth business day following the date on which a confirmation order becomes final is reasonable); In re Loveridge Mach. & Tool Co., 36 B.R. 159, 167 (Bankr. D. Utah 1983) (noting that an effective date set at thirty days after the confirmation order becomes final may be permissible).
The Potomac Iron Works court reasoned that setting the effective date "on or shortly after the final order [was] reasonable" since the creditors themselves could avoid any delay by simply foregoing any appeals and allowing the order to become final. Potomac Iron Works, 217 B.R. at 174; see also Wonder Corp., 70 B.R. at 1020 (noting that, while requiring that the effective date be within a short period after the confirmation date "may be conceptually attractive, in the real world of bankruptcy reorganization, it may not be attainable") (citation omitted).
Query whether it is ever justifiable to use an earlier effective date, such as the petition date or the date on which the debtor and its principal creditors reach an agreement on plan terms. Contra In re Becker, 169 B.R. 725, 732 (Bankr. D. Kan. 1994); In re Foos, 121 B.R. 778, 784 (Bankr. S.D. Ohio 1990) (finding that the effective time cannot be earlier than the date of the confirmation hearing for the first confirmable plan); In re Musil, 99 B.R. 448, 451 (Bankr. D. Kan. 1988) (holding that the effective date may not be defined as the petition date and can be no earlier than the date of the confirmation hearing for the first confirmable plan) (chapter 12).
Query who should bear the cost of money during the period between confirmation and substantial consummation of a plan. Is there any reason to exclude this issue from the plan negotiation process?
3. Other effective dates.
While most effective dates that survive court scrutiny are defined by reference to the entry or finality of the confirmation order, some courts have validated effective dates that were defined by reference to events related to the timing of substantial consummation of the plan. In In re Rolling Green Country Club, 26 B.R. 729, 734-35 (Bankr. D. Minn. 1982), the court upheld an effective date that the plan defined as the date on which liquidation proceeds would become sufficient to effect payments required by the plan. In In re Inter Urban Broadcasting, Inc., No. 94-2382, 1994 WL 646176, at *2 (F.D. La. Nov. 16, 1994), the district court upheld an effective date defined as the "closing date" of the sale of a radio station, which in turn was defined as not later than fifteen business days after the later of either Federal Communications Commission (FCC) approval of the assignment of FCC licenses to the buyer or the date the confirmation order would become final. See Wonder Corp., 70 B.R. at 1021 (noting that an effective date is acceptable if it "is linked to the happening of a particular event and is no later than is reasonably necessary to accomplish a legitimate purpose such as the determination of administrative expenses or the resolution of objections to claims"); In re Krueger, 66 B.R. 463, 465 (Bankr. S.D. Fla. 1986) (implying that an effective date may be deferred for a limited interval essential to conduct a liquidation). But, as noted immediately below, courts often reject the designation of deferred effective dates that put creditors' negotiated recoveries at risk.
4. Effective dates held unreasonable.
Courts have invalidated distant or indefinite effective dates as well as effective dates that otherwise violate provisions of the Bankruptcy Code. Prior to the 1994 Amendments to the Bankruptcy Code, which (among other things) deleted § 1124(3) (which had provided that a claim was unimpaired if the holder of the claim received cash equal to the allowed amount of the claim), payment on the effective date was one way to leave a class unimpaired. But even cases decided before the 1994 Amendments became effective prohibited an open-ended gap between confirmation and effectiveness. Jones, 32 B.R. at 958 n.13.
In Potomac Iron Works, 217 B.R. 170, the debtor's plan provided for an effective date one year after the confirmation order or, in the event of an appeal, one year after the confirmation order would become final. The debtor contended that it needed a full year to close out its receivables while completing current contracts. Id. at 171. The court upheld objections to this distant effective date because it unreasonably required the creditors to bear all the risk occasioned by the delay.
Accord In re Premiere Network Servs., No. 04-33402-HDH-11, 2005 Bankr. LEXIS 2298, at *14, *15, *18 (Bankr. N.D. Tex. July 1, 2005) (rejecting an effective date conditioned on the resolution of appeals of the confirmation order because the date's uncertainty would force claimants to subsidize the confirmation plan); In re Cent. European Dev. Co., 288 B.R. 572 (Bankr, N.D. Cal. Jan. 2, 2003) (finding that where delay is likely to prejudice creditors, the effective date should be reasonably close to the confirmation date) (citing to the 2002 version of this Outline); In re Yates Dev. Inc., 258 B.R. 36, 42 (Bankr. M.D. Fla. 2000) (stating that an effective date is unreasonable where it is defined by reference to the time when "an appellate court issues a ruling that [an increase in the purchase price for optioned property] is not enforceable ... [since] the only circumstance under which an effective date exists is a future appellate ruling in Debtor's favor"); Krueger, 66 B.R. at 465 (finding that a four month delay unreasonably resulted in creditors subsidizing the plan).
n1 All references to the "Bankruptcy Code" are to the United States Bankruptcy Code. All section numbers shall refer to the Bankruptcy Code unless otherwise indicated. References to the "Bankruptcy Rules" are to the Federal Rules of Bankruptcy Procedure.
II. Post-Confirmation Jurisdiction.
A. Sources of Post-Confirmation Jurisdiction.
1. Statutory Provisions
Bankruptcy courts, like all federal courts, are courts of limited jurisdiction. A federal court presumptively lacks jurisdiction unless a party can demonstrate affirmatively that subject matter jurisdiction exists. In re Shuman, 277 B.R. 638, 645 (Bankr. E.D. Pa. 2001).
Both the Judicial Code and the Bankruptcy Code provide sources of jurisdiction.
a. Judicial Code
The Judicial Code confers original, but not exclusive, jurisdiction on the district courts over civil proceedings "arising under" title 11 or cases "arising in or related to" title 11. 28 U.S.C. § 1334(b); see also 28 U.S.C. § 1334(e) (granting district courts exclusive jurisdiction over all of the debtor's property as of the commencement of the case). The district courts are authorized to refer any or all bankruptcy cases to the bankruptcy courts. 28 U.S.C. § 157(a).
b. Bankruptcy Code
Chapter 11 assumes that a bankruptcy court retains jurisdiction over certain post-confirmation matters. See, e.g., § 1112(b)(6)-(9) (stating that courts may dismiss or convert a chapter 11 case to chapter 7 after confirmation); § 1123(b)(3)(B) (stating that plans may provide for the retention and enforcement of estate causes of action brought by the debtor, trustee, or representative of estate); § 1127(b) (stating that courts may modify a plan before substantial consummation); § 1142(b) (stating that courts may enter orders necessary to implement the plan and order the performance of acts necessary for plan consummation); § 1144 (stating that courts may revoke confirmation for fraud). Section 105(a) authorizes a bankruptcy court to issue any order necessary or appropriate to carry out Bankruptcy Code provisions.
2. Court Interpretation
a. Judicial Code as Exclusive Source of Jurisdiction
Some courts have held that the Judicial Code is the sole source of a bankruptcy court's subject matter jurisdiction. E.g., In re Resorts Int'l, Inc., 372 F.3d 154, 165 (3d Cir. 2004) ("Although § 1142(b) assumes that post-confirmation jurisdiction exists for disputes concerning the consummation of a confirmed plan, 28 U.S.C. § 1334 remains the source of this jurisdiction."); In re U.S. Brass Corp., 301 F.3d 296, 306 (5th Cir. 2002); U.S. Tr. v. Gryphon at the Stone Mansion, Inc., 166 F.3d 552, 555 (3d Cir. 1999) ("The District Court correctly concluded that an analysis of the Bankruptcy Court's jurisdiction begins with 28 U.S.C. § 1334, not with 11 U.S.C. § 1142."); In re Pegasus Gold Corp., 296 B.R. 227, 233 (D. Nev. 2003), aff'd in part, rev'd in part on other grounds, 394 F. 3d 1189 (B.A.P. 9th Cir. 2005); In re Chateaugay Corp., 213 B.R. 633, 640 (S.D.N.Y. 1997) ("[N]either section 1142 nor section 105 confers jurisdiction on the Bankruptcy Court; they merely codify that court's equitable powers."); In re Cary Metal Prods., Inc., 158 B.R. 459, 465 (N.D. Ill. 1993), aff'd sub nom., Zerand-Bernal Group, Inc. v. Cox, 23 F.3d 159 (7th Cir. 1994) ("Section 105 does not provide a jurisdictional basis but provides the scope and forms of relief the court may order in an action in which it has jurisdiction.") (quotation omitted); see also 8 Collier on Bankruptcy § 1142.04, at 1142-47 (15th ed. rev.) ("[N]either section 1142 nor the terms of a plan confer jurisdiction upon a bankruptcy court. Bankruptcy jurisdiction is governed by 28 U.S.C. § 1334.").
b. Bankruptcy Code as Basis for Jurisdiction
Other courts have taken a broader view of § 1142 jurisdiction. E.g., In re Gordon Sel-Way, Inc., 270 F.3d 280, 289 (6th Cir. 2001) (noting that the court retains jurisdiction under the line of cases holding that § 1142 provides bankruptcy courts with the broad power to enforce the terms of a confirmed plan); Hillis Motors, Inc. v. Haw. Auto. Dealers' Ass'n, 997 F.2d 581, 587 n.l 1 (9th Cir. 1993), other findings superseded by statute, 11 U.S.C. § 362(b)(4); Beal Bank, S.S.B. v. Jack's Marine, Inc., 201 B.R. 376, 379 (E.D. Pa. 1996); In re Gallien, 214 B.R. 583, 585 (Bankr. E.D. Ark. 1997).
c. Section 105(a) Limitations
Supreme Court jurisprudence has undermined efforts to view § 105(a) as a wide-ranging source of jurisdiction, however. Specifically, the Court has held that a bankruptcy court may exercise § 105(a) powers only in a manner consistent with the other enumerated provisions of the Bankruptcy Code. In Norwest Bank Worthington v. Ahlers, 485 U.S. 197 (1988), the Court rejected an effort by family farmers to retain equity in their farm in violation of the absolute priority rule. Rebuffing the debtors' contention that the bankruptcy court had the power to approve the plan by asserting its equitable powers, the court held that "whatever equitable powers remain in the bankruptcy courts must and can only be exercised within the confines of the Bankruptcy Code." Id. at 206.
A year later, the Eighth Circuit discussed the breadth of § 105(a):
Section 105(a) is comparable to the All Writs Statute, 28 U.S.C. § 1651. Its purpose is to allow the bankruptcy court to issue equitable orders such as injunctions and stays and to punish for contempt in cases where such actions are consistent with the provisions of the Code. Section 105 does not empower a bankruptcy court to create new substantive rights.
In re NWFX, Inc., 864 F.2d 593, 596 (8th Cir. 1989); see also In re Combustion Eng'g, Inc., 391 F.3d 190, 225 (3d Cir. 2004) ("[Section] 105 does not provide an independent source of federal subject matter jurisdiction."); In re Birting Fisheries, Inc., 300 B.R. 489, 497 (B.A.P. 9th Cir. 2003) ("[Section] 105(a) does not confer subject matter jurisdiction . . . . Power under Section 105 is the scope and forms of relief the court may order in an action in which it has jurisdiction."); Cunningham v. Pension Benefit Guar. Corp., 235 B.R. 609, 618 (N.D. Ohio 1999); In re Nunez, No. 98-7077, 2000 U.S. Dist LEXIS 12078, at *24 (E.DN.Y. Mar. 21, 2000) (holding that § 105 could be used to enforce its orders for which subject matter jurisdiction had been established under § 1134 but could not be a predicate for jurisdiction); cf. In re Am. Preferred Prescription, Inc., 255 F.3d 87 (2d Cir. 2001) (explaining the difference between a court's subject matter jurisdiction (authority) and § 105 power (scope and forms of relief the court may order in an action in which it has jurisdiction)).
B. Jurisdiction Retention Clauses.
Plans and confirmation orders frequently contain provisions that retain jurisdiction in the bankruptcy court. Such provisions can be general, or may relate to specific matters. Courts do not agree on the effect of these clauses.
1. Retention Clause in Plan Crucial.
Some courts have held that a jurisdiction retention clause is a prerequisite to a bankruptcy court's post-confirmation jurisdiction. See, e.g., Northwood Estates v. Evergreen Bank, 114 Fed. Appx. 416, 416 (2d Cir. 2004) ("'[A] bankruptcy court retains post-confirmation jurisdiction in a chapter 11 proceeding only to the extent provided in the plan of reorganization.'") (quoting In re Johns-Manville Corp., 7 F.3d 32, 34 (2d Cir. 1993)); In re Smith, 141 F.3d 1179 (9th Cir. 1998); Falise v. Am. Tobacco Co., 241 B.R. 48, 58 (E.D.N.Y. 1999); Gallien, 214 B.R. at 585 ("Indeed, the Bankruptcy court lacks subject matter jurisdiction over adversary proceedings commenced post-confirmation unless the plan expressly provides for retention of jurisdiction."); Chateaugay Corp., 213 B.R. at 638 (same); see also Guccione v. Bell, 06 Civ. 492 (SHS), 2006 U.S. Dist. LEXIS 49526, at *10-11 (S.D.N.Y. July 20, 2006) (finding jurisdiction under § 1334 because the matter had a close nexus to the bankruptcy proceeding and the plan provided for the retention of jurisdiction); Gordon Sel-Way, 270 F.3d at 289 (relying on § 1142 and a plan provision to establish post-confirmation jurisdiction); In re Kevco, Inc., 309 B.R. 458, 464 n.10 (Bankr. N.D. Tex. 2004) ("[S]ome courts find a retention of jurisdiction in the plan to be a prerequisite to post-confirmation jurisdiction.").
The court in In re Murray, 214 B.R. 271, 277 (Bankr. D. Mass. 1997), interpreted a narrowly drafted jurisdiction retention clause as a restriction on the court's post-confirmation jurisdiction. Specifically, the court held that its jurisdiction was limited by language in the plan and the confirmation order reserving post-confirmation jurisdiction over adversary proceedings to those commenced prior to confirmation. See also In re Sunbrite Cleaners, Inc., 284 B.R. 336 (N.D.N.Y. 2002) (finding that because the plan did not provide for broad retention of jurisdiction, the bankruptcy court did not have subject matter jurisdiction over a post-confirmation motion).
2. Retention Clause in Plan Not Necessary.
Other courts have held that "the absence of a provision retaining jurisdiction in a confirmed plan or confirmation order does not deprive a bankruptcy court of jurisdiction." Gryphon at the Stone Mansion, 216 B.R. 764, 769 (W.D. Pa. 1997), aff'd, 166 F.3d 552 (3d Cir. 1999). Most courts agree, however, that since subject matter jurisdiction cannot be conferred by consent of the parties, Ins. Corp. of Ir., Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702 (1982), a provision in a plan or confirmation order cannot confer jurisdiction on a bankruptcy court where none exists by statute. In re Resorts Int'l, 372 F.3d 154, 161 (3d Cir. 2004) ("[I]f a court lacks jurisdiction over a dispute, it cannot create that jurisdiction by simply stating it has jurisdiction in a confirmation or other order."); Harstad v. First Am. Bank, 39 F.3d 898, 902 n.7 (8th Cir. 1994) (noting that a plan provision "cannot and does not confer jurisdiction upon the court, as only Congress may do that"); Zerand-Bernal Group, Inc. v. Cox, 23 F.3d at 164 ("A court cannot write its own jurisdictional ticket."); In re Burlington Motor Holdings, Inc., No. 99-1557, 2002 WL 73490, at *1 (D. Del. Jan. 18, 2002) (finding that a retention of jurisdiction provision in a plan can neither confer nor deprive a bankruptcy court of jurisdiction); In re TGX Corp., 168 B.R. 122, 130 n.29 (W.D. La. 1994); Pegasus, 296 B.R. at 233; Walnut Assocs. v. Saidel, 164 B.R. 487, 494-95 (E.D. Pa. 1994); Unico Holdings, Inc. v. Nutramax Prods., Inc., 264 B.R. 779, 785 (Bankr. S.D. Fla. 2001); In re Diagnostic Int'l, Inc., 257 B.R. 511, 514 (Bankr. D. Ariz. 2000); In re Goodman Bros. Steel Drum Co., 247 B.R. 604, 612 (Bankr. E.D.N.Y. 2000); In re Mendez, 246 B.R. 141, 144-45, (Bankr. D.P.R. 2000); In re Cont'l Airlines, Inc., 236 B.R. 318, 323 (Bankr. D. Del. 1999). But see In re Ground Sys., Inc., 213 B.R. 1016, 1020 (B.A.P. 9th Cir. 1997) (holding that even if a plan improperly gave the bankruptcy court post-confirmation jurisdiction, an objection should have been raised at confirmation and is otherwise res judicata).
C. Scope of Post-Confirmation Jurisdiction.
Courts are split on the scope of a bankruptcy court's post-confirmation jurisdiction. Much of the disagreement stems from the fact that some courts have relied on cases decided under the former Bankruptcy Act, which contained provisions limiting a court's post-confirmation jurisdiction in chapter XI cases. Other courts have relied on the jurisdictional grant in 28 U.S.C. § 1334(b), which does not contain any language limiting post-confirmation jurisdiction. See generally Frank. R. Kennedy & Gerald K. Smith, Postconfirmation Issues: The Effects of Confirmation and Postconfirmation Proceedings, 44 S.C. L. Rev. 621 (1993). Even courts that rely on § 1334 find that such jurisdiction "shrinks once bankruptcy plan confirmation has occurred." Guccione v. Bell, 06 Civ. 492 (SHS), 2006 U.S. Dist. LEXIS 49526, at *10 (S.D.N.Y. July 20, 2006).
1. Narrow Scope of Post-Confirmation Jurisdiction.
Some courts have limited the reach of the bankruptcy court's post-confirmation jurisdiction to matters necessary to protect its confirmation decree and issues that need to be addressed in order to aid in the execution of the chapter 11 plan.
The Fifth Circuit, in In re Craig's Stores, Inc., 266 F.3d 388 (5th Cir. 2001), recently crafted an "exacting theory of post-confirmation bankruptcy jurisdiction." Id. at 391. The court held that:
After a debtor's reorganization plan has been confirmed, the debtor's estate, and thus bankruptcy jurisdiction, ceases to exist, other than for matters pertaining to the implementation or execution of the plan.
Id. at 390. After its decision in Craig's Stores, the Fifth Circuit fine-tuned its holding in In re U.S. Brass Corp., 301 F.3d 296 (5th Cir. 2002). Citing Craig's Stores, the U.S. Brass court found that the motion before it pertained to the plan's implementation or execution and the bankruptcy court thus had jurisdiction because "[b]ankruptcy law will ultimately determine this dispute, and the outcome could affect the parties' post-confirmation rights and responsibilities." 301 B.R. at 305.
In a recent case, a bankruptcy court asserted post-confirmation jurisdiction after analyzing the dictates of Craig's Stores and U.S. Brass. In In re Kevco, Inc., 309 B.R. 458 (Bankr. N.D. Tex. 2004), the court asserted jurisdiction because it perceived that the plaintiffs were trying to manipulate the process by reasserting in a post-confirmation case filed in state court virtually the same claims they had asserted during the bankruptcy case. The court noted that an agent had been appointed under the plan to pursue avoidance actions. A recovery by the plaintiffs in state court against the debtor's D&O insurance policy carriers could reduce the recovery by the agent for the benefit of all the debtor's creditors, and thus would distort the bankruptcy policy of equality of distribution among similarly situated creditors. Id. at 465-66. Subsequently, in Texas Mexican Railway Co. v. Sun Drilling Products Corp., No. 04-2613, 2004 U.S. Dist. LEXIS 24382 (E.D. La. Nov. 30, 2004), a district court held that the bankruptcy court had post-confirmation jurisdiction because the "issue of whether or not Sun Drilling defaulted on its payments to Tex Mex pursuant to the provisions of the Amended Plan clearly involves an obligation created by the debtor's reorganization plan" but that the court did not abuse its discretion in abstaining from exercising that jurisdiction. Id. at *12-17 (citation omitted). In In re LJM2 Co-Inv., L.P., 319 B.R. 495 (Bankr. N.D. Tex. 2005), however, a bankruptcy court held that it lacked jurisdiction to entertain a claim against certain of the debtor's personnel. While the defendants who sought to remove the action to bankruptcy court asserted that the action constituted a collateral attack on the distribution scheme established by the plan of reorganization, the court disagreed on the basis that only third parties would be affected by the suit, not the debtor. See id. at 497, 504.
For additional cases propounding a narrow scope of post-confirmation jurisdiction, see In re Fairfield Communities, Inc., 142 F.3d 1093, 1095 (8th Cir. 1998); Goodman v. Phillip R. Curtis Enters., Inc., 809 F.2d 228, 232 (4th Cir. 1987); In re Encompass Servs. Corp., Civ. Action No. H-06-CV-0392, 2006 U.S Dist. LEXIS 28406, at *7-9 (S.D. Tex. May 3, 2006) (applying In re Craig's Stores); Liberty Mut. Ins. Co. v. Lone Star Indus., Inc., 313 B.R. 9, 15 (D. Conn. 2004); Cytomedix, Inc. v. Safeblood Techs., Inc., No. 02 C 4773, 2003 U.S. Dist. LEXIS 2466 at *8 (N.D. Ill. Feb. 20, 2003) (stating that once a confirmation order is entered, a federal court's "arising under" jurisdiction remains but its "related to" jurisdiction "is severely limited"); Beal Bank, 201 B.R. at 378 ("[P]ost-confirmation jurisdiction is limited by the need to end the debtor's tutelage status before such oversight causes harm.").
2. Broad Scope of Post-Confirmation Jurisdiction.
At least as many courts, a number of which rely on the fact that 28 U.S.C. § 1334(b) contains no language limiting subject matter jurisdiction upon confirmation, have held or assumed that a bankruptcy court's jurisdiction is unchanged upon confirmation, and thus jurisdiction lies if the matter falls within the bankruptcy court's "related to" jurisdiction. The Third Circuit in Gryphon at the Stone Mansion, 166 F.3d at 556, held that the actions listed under § 1142(b), ensuring that the bankruptcy court can safeguard consummation of the confirmed plan, are not "the only action[s] the bankruptcy court may entertain post-confirmation." Id. at 556. As a grant of authority, § 1142(b) does not abrogate the broader grant of jurisdiction conferred by § 1134. The court described the breadth of bankruptcy court jurisdiction existing post-confirmation as the "jurisdiction to entertain issues that necessarily must come its way prior to the close of the case." Id.
For additional cases affording a broad scope of post-confirmation jurisdiction, see In re CF & I Fabricators of Utah, Inc., 150 F.3d 1233, 1237 (10th Cir. 1998); In re Xonics, Inc., 813 F.2d 127, 132 (7th Cir. 1987); In re Encompass Servs. Corp., 337 B.R. 864 872 (S.D. Tex. 2006) ("Most circuits generally agree that 'related to' jurisdiction for post-confirmation disputes is warranted when the outcome of the suit could have any conceivable effect on the administration of the estate in bankruptcy."); NVF Co. v. New Castle County, 276 B.R. 340, 348-49 (D. Del. 2002), aff'd, 2003 U.S. App. LEXIS 2371 (3d Cir. Jan. 21, 2003); In re TGX Corp., 168 B.R. at 129; In re Charis Hosp., L.L.C., No. 01-106 16, 2002 Bankr. LEXIS 1885, at *5-6 (Bankr. M.D. La. Dec. 5, 2002) (applying In re Craig's Stores to find that state court claims that may effect distribution are not sufficient to bring them under the court's jurisdiction); Eubanks v. Esenjay Petroleum Corp., 152 B.R. 459, 464 (E.D. La. 1993) ("It therefore appears that bankruptcy jurisdiction . . . extends to proceedings that have a conceivable effect upon the administration of a bankruptcy case.") (quotation omitted); In re Burlington Motor Holdings, Inc., 2002 WL 73490, at *1-2; In re Pegasus Gold Corp., 275 B.R. 902, 909-12 (Bankr. D. Nev. 2002); In re MAI Sys. Corp., 178 B.R. 50, 52 (Bankr. D. Del. 1995) ("Nothing in the language of 28 U.S.C. § 1334 limits this broad grant of jurisdiction to pre-confirmation proceedings."); In re Holly's Inc., 172 B.R. 545, 554 (W.D. Mich. 1994); In re Omega Corp., 173 B.R. 830, 834 (Bankr. D. Conn. 1994) ("The post-confirmation constriction of the bankruptcy court's jurisdiction results not from a change in the statutory basis for jurisdiction . . . but rather from the fact that the universe of matters related to a case is diminished once confirmation is achieved.").
Some cases do not even discuss whether bankruptcy court jurisdiction should contract in the post-confirmation period. For example, the court in Belcufine v. Aloe, 112 F.3d 633 (3d Cir. 1997), analyzed the breadth of jurisdiction over an action filed by the debtor's former employees post-confirmation in terms of the breadth of § 1334(b). The court did not analyze the scope of jurisdiction by reference to the extent that the plan had been consummated. See also In re Marcus Hook Dev. Park, Inc., 943 F.2d 261, 264 (3d Cir. 1991); In re Wolverine Radio Co., 930 F.2d 1132, 1140-43 (6th Cir. 1991).
Query as to the effect of § 1127(b)'s prohibition against post-confirmation plan modification on the scope of post-confirmation jurisdiction. Compare § 1127(b), with Bankruptcy Act § 387 (providing procedures to be followed where modifications or alterations are proposed to a plan of arrangement that has already been confirmed).
3. Scope of Jurisdiction after Closing of Case.
a. General Rule
As a general rule, a bankruptcy court's subject matter jurisdiction ends after a chapter 11 final decree closing the case is entered pursuant to Rule 3022. Blakeley v. United Cable Sys., 105 F. Supp. 2d 574, 580-81 (S.D. Miss. 2000); Cook v. Chrysler Credit Corp., 174 B.R. 321, 327 (M.D. Ala. 1994); Walnut Assocs., 164 B.R. at 491; In re Poplar Run Five L.P., 192 B.R. 848, 859 (Bankr. E.D. Va. 1995); In re Terracor, 86 B.R. 671, 676 (D. Utah 1988).
The court in In re Diagnostic Int'l, Inc., 257 B.R. 511 (Bankr. D. Ariz. 2000), described the bankruptcy court's diminishing jurisdiction as the case proceeds through consummation to closure:
The bankruptcy court's jurisdiction can be seen as slowly diminishing as the proceeding before the court has less and less to do with bankruptcy and as the bankruptcy itself slowly resolves. It is generally accepted that bankruptcy courts retain some measure of jurisdiction after confirmation, though somewhat diminished, to enforce the court's own orders, modify the plan, and ensure enforcement of the plan. Jurisdiction further erodes upon entry of the final decree.
Id. at 515 (citations omitted).
b. Enforcement by Court of its Own Orders
A recognized exception to the general rule is that subject matter jurisdiction exists where a bankruptcy court is asked to enforce or interpret its own orders. In re Colarusso, 382 F.3d 51, 57 (1st Cir. 2004) (finding jurisdiction exists for the court to interpret its own order); United States v. Mourad, 289 F.3d 174, 180 (1st Cir. 2002) (holding in a contempt case that bankruptcy courts retain jurisdiction to enforce their orders after the case closes); Koehler v. Grant, 213 B.R. 567, 569-70 (B.A.P. 8th Cir. 1997) (finding that the court has jurisdiction to issue a contempt order for the violation of a pre-confirmation disqualification order even though the case is closed); In re Kewanee Boiler Corp., 270 B.R. 912, 920-21 (Bankr. N.D. Ill. 2002) (holding that the court had permanent and continuing jurisdiction to determine the reach and effect of a § 524(a)(2) discharge injunction); In re Commercial Fin. Servs., Inc., 247 B.R. 828, 842-44 (Bankr. N.D. Okla. 2000) (retaining the power to enforce or modify a protective order that survives the closing or dismissal of a case).
c. Reopened Cases
If a case has been closed but is subsequently reopened, a bankruptcy court may exercise subject matter jurisdiction. Donaldson v. Bernstein, 104 F.3d 547, 551-53 (3d Cir. 1997) (finding that after chapter 11 case had been reopened and converted to chapter 7, the court had jurisdiction to hear the chapter 7 trustee's claim against the debtor's principals for breach of fiduciary duty). It seems, however, that the administrative act of reopening a case is not a prerequisite for jurisdiction. In re Midstate Mortgage Invs., Inc., 105 Fed. Appx. 420, 422 (3d. Cir. 2004) (citing Donaldson, 104 F.3d at 552, and stating "[t]hat the case was closed did not prevent the court from reopening the case to enforce its own order"); In re Menk, 241 B.R. 896, 917 (B.A.P. 9th Cir. 1999) ("[T]he order reopening the case was in the nature of administrative bookkeeping and had no effect on the bankruptcy court's § 1334(b) jurisdiction over the underlying adversary proceeding."); In re Taylor, 216 B.R. 515, 521 (Bankr. E.D. Pa. 1998) (holding that a court has jurisdiction to determine the fee payable to a "property finder" for a debt twelve years after the case closed without formally reopening the case because whether a case is open or closed relates solely to its administrative status and not to the court's jurisdiction).
A court has broad discretion to abstain from reopening a case to hear a matter over which it has jurisdiction, however. The court should consider such issues as: (1) whether there is an alternative forum to adjudicate the issue; (2) comity; (3) avoidance of forum shopping; and (4) judicial economy. § 1334(c); In re Middlesex Power Equip. & Marine, Inc., 292 F.3d 61, 69 (1st Cir. 2002). Similarly, when a court does have jurisdiction, it is within the court's discretion to abstain from exercising that jurisdiction. In re Colarusso, 382 F.3d 51, 57 (1st Cir. 2004). Colarusso noted, however, that federal courts should generally exercise their jurisdiction when it exists, and abstention is the exception rather than the rule. Id.
Share with your friends: